Slight decline in housing construction: the negative actual economic impact has not yet begun
Slight decline in housing construction: the negative actual economic impact has not yet begun
– by New Deal democrat
Housing permits (gold) increased slightly in January from their December lows, while the more volatile housing starts (blue) declined again. The much less volatile single family permits (red, right scale) also declined again to a new post-pandemic low:
This is a very important long leading indicator, and shows that coming misery in the economy due to housing sector is nowhere near bottoming out.
But, as I wrote on Monday, the most important metric in the entire economy right now is probably housing units under construction, which is the “real” economic impact of the industry. Here there was a very slight (less than 1%) decline from a revised peak in October:
The bottom line is that the actual *economic* downturn in housing has not begun yet.
So we know the Fed interest rate hikes are going to kick new housing construction in the teeth eventually. Because both building new homes and purchasing them are more dependent on financing than many other economic activities. But New Deal Democrat seems to be saying that there has been such a disruption in supply for construction, due perhaps to the pandemic, that projects previously begun are still being continued. And therefore, that the already ‘long and variable time lags’ associated with monetary policy have been extended even further than normally might be expected.
Today I listened to Ezra Klein interviewing Paul Krugman where the description of monetary policy as central bankers operating heavy machinery in a dark room while wearing mittens was mentioned. I think that is actually an optimistic view of the capabilities of monetary policy makers. I don’t think they would know how to operate the machinery even in broad daylight without mittens on. They’re driving a bulldozer that they have no idea how to control so as to do anything useful. And they don’t even know when the damn bulldozer will start to move, and they don’t know when it will stop. Sure they can wreck plenty of things with their bulldozer- things like housing. But does anyone think we don’t have a need for housing in the US? It is a bad tool to use.
Jerry:
And they may be attacking the wrong issues too.